O'Donovan, Fairbanks, Lubin and Baran outlined the existing conflict potential in the Caucasus region and addressed the role of development assistance in resolving existing conflicts and preventing others from becoming full-fledged wars.

O'Donovan began the session by describing the work of the Eurasia Foundation in Armenia, Georgia and Azerbaijan. With regional offices in Baku, Tiblisi and Yerevan, the Foundation is one of the few organizations who have focused on building cross-border cooperation in the region. Its South Caucasus Cooperation Program connects change agents in the three countries with each other, thus building confidence in a region that is rife with ethnic tensions and facilitating exchange by using information technologies where it is difficult to organize in-person meetings due to poor infrastructure.

Fairbanks gave an overview of the various ethnic conflicts that have plagued the region since the disintegration of the Soviet Union. He emphasized the positive role development assistance could play in South Caucasus, given the fact that the very structure of the regional economy is a source of instability. In Fairbanks' view, the economies of Georgia, Azerbaijan and Armenia have been dominated by kleptocratic regimes, with elites having enriched themselves at the expense of society-at-large during the push for privatization. In addition, the ongoing ethnic and sectarian tensions create significant gray areas where smuggling and corruption are rampant and tax collection insufficient. This further undermines governments' ability to provide services to all citizens. Fairbanks noted that while confidence-building measures hold some promise for conflict transformation, they would have to be accompanied by providing incentives to the stronger actors involved. On the other hand, success in resolving one of the region's conflicts might create momentum that could spill over to other conflict resolution endeavors.

Lubin raised several questions that the development community should consider when looking at the development-conflict nexus in the Caucasus region. Conflict sources are so varied in the region, ranging from poverty to inequality to ethnic tension, yet the understanding of what ultimately triggers violent conflict is still incomplete. In the absence of ongoing monitoring of all possible triggers, it is often difficult for development professionals to pinpoint which issues to focus efforts on. Lubin also pointed towards the need of carefully factoring into programs the potential impact they might have with regard to conflict. She compared this process to that of doing an environmental impact assessment that industrial countries routinely require before launching any project. According to Lubin, development assistance professionals should also ask themselves why programs are successful in some countries but not in others and why it is that in some places, even though all the conflict indicators are present, violent conflict never materializes.

Baran spoke to the importance of oil and gas development in the region and its impact on strategic relations. Most of the attention remains focused on the routes of existing pipelines and proposed pipeline projects. Which countries become transit routes for pipelines has important repercussions in the international relations of the Caucasus. Money from oil wealth also has the potential to alter existing balances of power significantly, with concomitant implications for the potential of resolving the Nagorny Kharabakh and Abkhasia disputes. Another important factor is Russian influence, which is still paramount in the region and can serve as an obstacle or as a catalyst for conflict resolution, according to Baran. For development assistance to have a positive impact on the region's conflictual relations, Baran recommends looking at the likely resolution of the Cyprus issue between Turkey and Greece for guidance. There, she noted, external pressure by the EU, combined with the promise of future economic benefits shifted the incentive structure in favor of peaceful resolution.

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